LESSON 1 – GLOBALIZATION AND THE MULTINATIONAL ENTERPRISE
International Trade refers primarily to trade in goods and services across the border of a country.
ITC – International Trade Centre
Globalization
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a process of international integration, and its development is due to increased exchange of products, services, etc.
at global level, also with the influences of other aspects related to cultural and social environment.
a complex process having social, environmental, cultural implications, being strongly connected with economic
mechanisms, and various aspects related to markets, production, etc. which need to be discussed and considered
when developing specific marketing activities beyond the borders of a country.
shows influences related to expansion of investments in different countries, international trade development,
communication development, etc.
in the economic area – refers to interdependence of economies of countries due to increased cross-border flows
of products, services, capital, etc.
is the process where the economies of different countries are interconnected, and consumers in one country can
easily buy products from other countries.
was supported by aspects such as the increase in trade across national borders, reduction of trade barriers,
simplification of procedures, etc.
influences the development of companies, offering the opportunity to address the global market by exploiting
advantages, and the way of developing activities at international level varies depending on company size.
Index of Globalization
1.) KOF Index of Globalization – measures three dimensions of globalization: economic, social, political.
2.) Enabling Trade Index – refers to factors that facilitate cross-border trade in goods, taking into account aspects
such as: market access, border administration, transport and communication infrastructure, and operating
environment.
Economic Interdependence
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refers to the relationships that are between countries, in which each country is dependent on another for
necessary goods or services.
occurring due to specialization of countries, as they are dependent on others in the purchase of products which
are not manufactured nationwide.
Trade Globalization
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refers to the output crossing the border, and to the number of jobs connected with foreign trade.
represents the share of the total volume of trade in GDP (Baccaro, 2011)
the ratio of world export divided by all national GDPs.
Macroeconomic forces that are reshaping the world: (Sheth & Parvatiyar, 2001)
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integration and the emergence of the triad power
technology advances
emergence of an ideology-free world
role of the market economy policy
Borderless Markets – is a consequence of global sourcing and global competition - which have a major contribution in
transforming international marketing into integrated global marketing with transnational similarities.
The decision of business internationalization is related to various determinants such as: (Pop et al, 2011)
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worldwide political relaxation process
increased independence of national economies emphasized by the aspiration for world states for mutuality
successful competition in the business world, in all geographic areas
companies currently operating worldwide activities and the ones especially coming from Asian countries
diffusion of new technologies and key technologies and their development, particularly in the information and
communication field
6. globalization of world markets in terms of blurring the specific differences between them
These objectives that companies have to pursue when going abroad are motivated by:
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exploiting market potential and growth
gaining scale and scope returns at home
learning from a leading market
pressuring competitors
diversifying markets
learning how to do business abroad, adding new experiences and learning new skills along with finishing new
complex tasks
building and strengthening the competitive position
lengthening or rejuvenating product life cycles
technological advantages
fiscal advantages
overproduction
increasing interest for marketing practices
capitalization of labor force advantages in terms of skills and costs
increasing
the
reputation
of
the
company
through
global
image.
 According to Boston Consulting Group research, the advertising expenditure of large companies (Fortune 500
companies) are higher than on capital investment, nearly a third devoted as much to advertising as to capital
expenditures.
 Many researchers strive for adaptation in international marketing, while others suggest standardization.
 Nowadays, globalization cannot be ignored by businesses, first because of strong competition on the domestic market,
but also to the opportunities provided by the foreign markets and foreign customers.
Enterprise – refer to organizations engaged in business activities such as production, service, and sales, regardless of their
legal form or type of ownership.
Multinational Enterprise (defined by Dunning)
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as one that owns and controls income-generating assets in more than one country
a coordinator of value added in two or more countries
Multinational Company (MNC) – is an enterprise that manages production or delivers services in more than one country.
Challenges faced by MNC:
1. Market Imperfections – the firms can maximize their joint income by merger or acquisition which will lower the
competition in the shared market. This could also be the case if there are few substitutes or limited licenses in a
foreign market.
2. Tax Competition
 to compete, countries and regional political districts must offer incentives to MNCs such as tax breaks,
pledges of governmental assistance or improved infrastructure.
 there is no evidence to suggest that MNCs deliberately avail themselves of tax environmental regulation
or poor labor standards.
3. Political Instability
 when there is an absence of a reliable government authority.
 associated with corruption and weak legal frameworks that discourage foreign investments.
4. Market Withdrawal – the size of multinationals can have a significant impact on government policy, primarily
through the threat of market withdrawal.
5. Lobbying
 is directed at a range of business concerns, from tariff structures to environmental regulations.
 for every tariff category that one multinational wants to have reduced, there is another multinational that
wants the tariff raised.
Business – is an organization or economic system where goods and services are exchanged for one another or for money.
It can be privately owned, not for profit or state-owned.
International Management – is the process of applying management concepts and techniques in a multinational
environment.
International Business – all business activities, including the creation and transfer of resources, goods, services, know
how, skills, and information, which transcend national boundaries.
Goods – include manufactured parts, sub-assemblies, and assemblies.
Services – may include accounting, financial, legal, consulting, import and export, health care, and transportation.
Know-How – may include product and process technological innovations, copyrights, trademarks, and brands.
Skills – may include organizational and managerial skills.
Information – includes databases as well as information networks
Multidomestic Company – is an organization with Multi country affiliates each of which formulates its own business
strategies based on perceived market differences.
Global Company – an organization that attempts to standardized and integrate operations worldwide in all functional
areas.
International Company – either a global or a multi domestic company.
Environment – as used here is the sum of all forces surrounding and influencing the life and development of the firm. The
forces themselves can be classified as external or internal. Furthermore, management has no direct control over them,
though it can exert influences such as lobbing for a change in a law and heavily promoting a new product that requires a
change in a cultural attitude.
International Environment – involves interactions between the domestic and foreign environmental forces or between
set of foreign environmental forces.
Five Drivers of Globalization